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American Economic Review: Vol. 101 No. 6 (October 2011)

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How Demanding Is the Revealed Preference Approach to Demand?

Article Citation

Beatty, Timothy K. M., and Ian A. Crawford. 2011. "How Demanding Is the Revealed Preference Approach to Demand?" American Economic Review, 101(6): 2782-95.

DOI: 10.1257/aer.101.6.2782

Abstract

A well-known problem with revealed preference methods is that when data are found to satisfy their restrictions it is hard to know whether this should be viewed as a triumph for economic theory, or a warning that these conditions are so undemanding that almost anything goes. This paper allows researchers to make this distinction. Our approach uses an axiomatic characterization of a measure of predictive success due to Selten (1991). We illustrate the idea using a panel dataset. The results show that this approach can lead us to radically reassess our view of the empirical performance of economic theory. (JEL D11, D12)

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Authors

Beatty, Timothy K. M. (U MN, St Paul)
Crawford, Ian A. (U Oxford)

JEL Classifications

D11: Consumer Economics: Theory
D12: Consumer Economics: Empirical Analysis


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